GBIC calls for leaner and more effective rules on non-performing loans

The German Banking Industry Committee (GBIC) sees room for improvement regarding the resolution adopted today by the European Parliament’s Committee on Economic and Monetary Affairs (ECON) on what is referred to as the prudential provisioning mechanism. The rules on non-performing loans (NPLs) need to become leaner and more effective.

In principle, the GBIC supports the ECON Committee’s intention to reduce non-performing loans. However, the resolution adopted today (“NPL backstop”) does little to achieve the objective because it imposes a disproportionately heavy burden on credit institutions with low NPL ratios. For this reason, the GBIC advocates rules to differentiate between banks and Savings Banks with high and with low NPL portfolios.

Moreover, the current requirements – which are too generic in nature – send the wrong message by encouraging banks to remove non-performing loans as soon as possible from their balance sheets and to sell them to specialised liquidators or other investors (such as hedge funds), instead of restructuring the loans in cooperation with borrowers.